Yahoo Finance United Natural (UNFI) Benefits From Transformation Efforts
United Natural Foods, Inc. UNFI is undergoing a thorough transformation journey focusing on several strategic initiatives. This leading food provider is seeing growth thanks to its improved e-commerce solutions. Additionally, UNFI is making strides in reducing shrinkage and enhancing supply chain efficiency despite facing challenges within the industry.
Let’s discuss this in detail.
Transformation Efforts Hold Promise
United Natural has embarked on a comprehensive transformation journey that involves several strategic elements. The company is progressing towards improving margins and enhancing cash flow generation through strategic initiatives in four main areas: expanding and intensifying network optimization efforts, decreasing annual capital expenditures, optimizing cost structures and significantly reducing net working capital.
As part of this process, management is rapidly implementing near-term value-creation initiatives that are expected to contribute to its operating efficiencies. Building on progress made in the past year, the company anticipates further enhancing its expense structure, aiming to achieve efficiencies comparable to the $150 million already achieved. This optimization effort involves a cohesive and strategic approach to customer and supplier interactions, along with improved alignment of corporate resources in line with the updated strategy.
The company intends to allocate around $300 million towards capital expenditures in fiscal 2025, focusing on maintenance, targeted network enhancements, and technology upgrades. This strategy aims to optimize resource allocation, bolster the overall business and balance sheet, and enhance capacity for strategic investments in higher-margin segments such as services. Moreover, the company is focusing on its workforce and processes, investing in labor for distribution centers and transportation as part of foundational transformation initiatives.
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E-commerce Strength
United Natural’s sales are benefiting from e-commerce strength, thanks to increased e-commerce solutions offered by the company. Several of the company’s Independents and Chains channels provide e-commerce solutions to their customers. It offers digital platforms and the support its customers need. In this regard, the company’s value-added supplier program, UNFI Insights, bodes well. The company had also launched Community Marketplace — a business-to-business digital e-commerce solution. The platform is designed for emerging brands, which helps the company expand distribution with customers.
Enhancing Supply Chain
United Natural is on track to improve its supply chain processes and management disciplines to fuel growth. In this regard, the company is achieving a major reduction in shrink, which is positively impacting its financial performance and operational efficiency. In the third quarter of fiscal 2024, the enhanced wholesale margin reflects ongoing shrink improvement, nearing pre-COVID levels of approximately 30 basis points as a percentage of sales. The company sees additional potential to reduce this figure further, thereby enhancing profitability without affecting customers or suppliers.
Weak Retail Business Persists
United Natural has been bearing the brunt of weakness in the Retail business for a while. In the third quarter of fiscal 2024, sales in the retail segment declined 4.5% year over year. The company’s retail business continues to experience challenges at the top line due to significant price sensitivity among consumers in the retail markets. We note that factors like economic pressures, reduced government assistance, changing consumer behavior and increased competition affecting consumer spending are concerning.
United Natural’s emphasis on the benefits mentioned above is expected to continue driving its growth narrative.
The Zacks Rank #3 (Hold) company’s shares have increased 12.3% in the past three months compared with the industry’s decline of 8.9%.
Solid Staple Picks
Vital Farms Inc. VITL offers a range of produced pasture-raised foods. It currently sports a Zacks Rank #1 (Strong Buy). VITL has a trailing four-quarter average earnings surprise of 102.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings indicates growth of 22.6% and 59.3%, respectively, from year-ago reported numbers.
Freshpet, Inc. FRPT, a pet food company, has a trailing four-quarter earnings surprise of 118.2%, on average. FRPT currently sports a Zacks Rank #1.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 24.8% and 177.1%, respectively, from the prior-year reported level.
Utz Brands Inc. UTZ, which manufactures a diverse range of salty snacks, currently carries a Zacks Rank #2 (Buy). UTZ has a trailing four-quarter earnings surprise of 2%, on average.
The consensus estimate for Utz Brands’ current financial-year earnings indicates growth of 26.3% from year-ago reported numbers.
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